Notes from the Alaska Fiscal Cliff: What the heck is going on with Permanent Fund earnings

Last Wednesday the Department of Revenue published a "Preliminary Fall 2017 Revenue Forecast," http://bit.ly/2z2Chbt  ("Forecast") in conjunction with the start of this year's fifth Special Legislative Session. 

The Forecast is a ten-year forward look at the state's revenue picture.

Most news outlets reporting on the Forecast focused on the increase in oil production -- and associated revenue -- levels reflected in the analysis.

But as we discussed briefly the day following the release during a stint as guest host on the Tom Anderson Show there appears to be a much more important change buried in the detail.  See "Why the Administration’s revised 2017 Revenue Forecast calls into question the need for PFD cuts (or any other so-called “new revenue”), http://bit.ly/2iJ0yNW.

The change is in the level of annual projected earnings from the Permanent Fund. 

While the Forecast projects a small net increase of $38 million (or 3%) in unrestricted general fund ("UGF") FY 2018 oil revenues from the earlier Spring forecast, http://bit.ly/2zPvlM4, it projects a whopping $1.1 billion (or 33%) increase in realized Permanent Fund earnings from the earlier Spring book.

To be clear, that's not a year on year increase. That's an increase merely between what was projected for FY 2018 for that category of revenue in the Spring book and is now included in the Preliminary Fall Forecast.

As we said during our Tom Anderson Show segment and later when we posted the podcast, we believe that update is a potential game changer in the way that the Administration and Legislature should be looking at the need for any new revenue sources during the current (FY 2018) year.

Moreover, we believe that potential game changer applies to future years as well.  

Over the last couple of days we have had the opportunity to take a deeper dive into the Forecast, and to compare it with both the earlier Spring book and previous Permanent Fund Corporation projections.  The results are in the chart below.  

It is clear that something significant changed between the forecast published by the Permanent Fund Corporation for August of this year and that published for September.  We have circled the numbers reported respectively in the earlier Fall 2016, Spring 2017 and most recent Preliminary Fall 2017 Forecast below.

And whatever it is that has caused the change in outlook has changed the Corporation's -- and with that, the Administration's -- outlook for earnings beyond FY 2018 as well.

Right click on chart to increase size in a separate tab.

The Permanent Fund is now projected not only to generate an additional $1.1 billion in earnings in the current fiscal year, but also a fairly consistent $500 million more in subsequent fiscal years over the levels supplied to the Legislature during the previous sessions this year.

Simply put, if the Permanent Fund is projected to generate those, significantly higher earnings levels both currently and going forward, we believe the already weak rationale for cutting the PFD both currently and going forward is substantially diminished further, if not eliminated entirely. 

We will have more to say about this in the coming week, including during our weekly segment on The Michael Dukes Show this coming Tuesday. 

For now, we just want those who think about these issues to start focusing on the level and potential significance of the changed projections.

Notes from the Alaska Fiscal Cliff: Be careful what you wish for, part 2

A couple of months ago we wrote a column entitled "Be careful what you wish for," https://goo.gl/nA3Spw. 

The column was in response to an op-ed in the Alaska Dispatch News by Charles Wohlforth which, on the surface, appeared to champion an amendment to include the PFD in the constitution, but in the fine print turned out to be a proposal to lock in a proposal to cut and cap the PFD at less than half the current statutory level.

We were reminded of that piece while reading another ADN op-ed this morning, this time by Alaska House Majority Coalition leadership members Reps. LeDoux and Tuck. "Alaskans have a right to the PFD. Let’s write it in stone.," https://goo.gl/Bq6ztd

Like the previous Wohlforth piece, the LeDoux/Tuck piece sounds good at first blush to those concerned about the overall Alaska economy and Alaska families. 

But also like the Wohlforth piece, upon closer inspection the reader realizes they are talking about enshrining the PFD in the constitution ONLY AFTER first cutting and capping it at levels significantly below those envisioned by Governor Hammond.

LeDoux & Tuck deserve credit for doing a better job at obfuscating their intention than Wohlforth. In his piece, Wohlforth came out and said:

A dividend of $1,100, close to the historic average, seems about right. It will do the good we need but is not enough to distort behavior and the economy. A constitutional amendment should set the dividend at that amount permanently with a cost-of-living adjustment to keep it from eroding due to inflation.

Being politicians, the LeDoux/Tuck piece avoids a similarly specific sentence.

But reading the full column it becomes clear that what Reps. LeDoux & Tuck have in mind is including in the Constitution a PFD calculated along the lines of that included in the Alaska House Majority Coalition fiscal plan introduced last session. 

That plan first resets the annual draw from Permanent Fund earnings on which the PFD is calculated based on a percent of market value (POMV) approach, then caps the PFD at one-third of the resulting draw.

While better than the Senate plan -- which caps the PFD at one-quarter of a POMV-based withdrawal -- the House plan still falls far short of the 50/50 split, based on actual realized earnings rather than an artificially established percentage, originally envisioned by Governor Hammond and the other founders of the PFD program and incorporated into current statute.

As a result, the House plan still carries with it the same general effects as the original Senate plan.  Using ISER's 2016 report to analyze the effects, the House plan -- and thus, the LeDoux/Tuck proposal -- still relies heavily on on a mechanism (a PFD cut) which:

• “Has the largest adverse impact on the economy [of all the new revenue options] per dollar of revenues raised,” https://goo.gl/ZxR1Hw at A-15;

• Is “by far the costliest measure for Alaska families,” https://goo.gl/ivf9D2 at 1; and

• “[W]ill likely increase the number of Alaskans below the poverty line by 12–15,000 (2% of Alaskans),” https://goo.gl/iuTjv2 at 14.

As some readers may recall we analyzed the full House plan on these pages three weeks ago.  Reflecting our conclusion, we titled it, "Why are the House Democrats & Independents sticking it to middle and lower income Alaskans?," https://goo.gl/pTYsTV

The LeDoux/Tuck proposal doesn't change that result. Instead, it makes it even worse by proposing to enshrine a large part of the approach in the Constitution.

As we said when discussing the Wohlforth piece, we anticipate that some are hoping:

... that Alaskans, disappointed in the [recent] Supreme Court's decision ... will grab at anything, literally anything, that proposes to "Constitutionalize the PFD." 

But we, at least, will not. 

Instead, we are going to hold out for the thing that we believe -- and the available evidence and studies support -- best serves the overall Alaska economy and Alaska families. And that is Governor Hammond's vision for use of the earnings produced from the Permanent Fund outlined in Diapering the Devil, as enshrined in the Alaska statutes since the early 1980's: 

"Each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.” Diapering the Devil, https://goo.gl/FFTi9M at 15, 19.

As with others before it, the LeDoux/Tuck proposal falls far short of that objective.  

We hope others will join us in holding out for the "real thing" and dismissing the LeDoux/Tuck op-ed as quickly as Wohlforth's was before it.

Notes from the Alaska Fiscal Cliff: The Lt. Governor is misleading Alaskans

(Note: With this commentary we are beginning a new series about Alaska's current fiscal situation on national website, Medium. Titled "Notes from the Alaska Fiscal Cliff" the series intended to reach a broader, national audience about Alaska's evolving fiscal condition. The commentaries will be published on our Medium page, here. For those that follow this page, we intend to continue publishing the pieces here as well.)

Let’s be clear. The Lt. Governor of this state is misleading Alaskans.

In his speech to last week’s annual convention of the Alaska Federation of Natives and subsequent op-ed in the Alaska Dispatch News the Lt. Governor claimed that the reduction in state spending has caused Alaska’s current recession (“state spending is so minimal that we are now in a recession”). See “Do-nothing legislative leaders threaten to make Alaska no more than a colony,” https://goo.gl/c2wzLX

That is simply not true. The decline in oil prices and relatively low production levels (compared to the last 4 decades) is what has caused Alaska’s current recession.

One of the consequences of that has been reduced government spending levels (actually, a pop in the bubble of unsustainable spending which characterized the early part of the decade). That, in turn, has affected some parts of the economy tied to government spending, but that isn’t the cause of the recession, at most it’s a consequence.

What is true, but went unsaid in both the Lt. Governor’s speech and op-ed, is that Alaska’s government has made the overall recession worse than it otherwise needs to be.

According to the unrefuted 2016 analyses by the University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER), cutting Alaska’s Permanent Fund Dividend (PFD) has the “largest adverse impact on the economy” (both on jobs and income) and is “by far the costliest measure for Alaska families” of all the various “new revenue” options. See “Short-Run Economic Impacts of Alaska Fiscal Options,” https://goo.gl/ZxR1Hw, and “How Much Might Closing the State Budget Gap Cost Alaska Families?,” https://goo.gl/ivf9D2.

Those are the direct quotes: “largest” and “costliest.”

There are no contrary analyses; none. There hasn’t even been a substantive rebuttal of the point.

Yet, despite the fact that the state is already in a recession, that (cutting the PFD in order to maintain continued government spending) is precisely the fiscal policy that, to varying degrees, the Governor, Senate and House all have pursued.

There are some beneficiaries of that policy. Some parts of the economy tied closely to government spending levels have been maintained, and the Top 20% of Alaskans by income have dodged paying a significant share of the resulting costs.

But those have come at the disproportionate expense of the Remaining 80% of Alaskans and, even more importantly, at the cost of imposing a larger adverse impact on the overall economy and Alaska families.

Put simply, the Governor, Senate & House have prioritized the government sector over the overall economy, and the Top 20% of Alaskans over the Remaining 80%.

The Administration’s proposed payroll tax, its latest proposed “solution,” would only make that situation worse. See “Why the Governor’s newest proposal is still bad,” https://goo.gl/RFdBEX.

If we need to go there, there is a way to raise “new revenues” that treat both all Alaska families fairly and, by spreading the revenue base broadly, the overall economy gently. See “Finding the Alaska fiscal ‘center’,” https://goo.gl/AxBaHK.

But to reach that point requires that Alaska’s leaders to be open & honest about the causes of the state’s condition and the effect of their proposed cures.

The Lt. Governor’s remarks are anything but.

A flat tax is better at controlling spending than Senate or House approaches

Recently, some have taken to defending the Senate's 'new revenue' approach as the best way to control spending. Others have championed the House's approach, which at the end of the day isn't much different from the Senate's.

If we have to adopt any 'new revenue' measures -- and given the Senate's decision to throw in the towel on the issue this past session it appears we do -- we believe a flat tax is better than either at creating the necessary incentives to control costs. Here's why.

The Senate & House approaches

The Senate's 'new revenue' approach is to tax ("cut") the PFD at 50% and to leave a 'structural deficit' (i.e., revenue shortfall) in place with respect to the remainder of the current spending level. Those defending the approach argue that it is the best way to control spending because the tax reaches all Alaskans (presumably giving them an 'equal' incentive to help control costs) and leaves a deficit in place in order to spur the need for additional cost reduction.

Frankly, we are surprised those defending the approach are able to keep a straight face when making the argument in public. Knowing those involved, we suspect they don't even try behind closed doors.

As we have explained repeatedly on these pages (and is summarized on the chart below), the PFD tax does not hit all Alaskans proportionately. It takes less than 2% of a typical family of four in the Top 20% income bracket, but takes more than 30% of the income of the same family in the Lowest 20%. 

In between, it takes more than 5% from the same family in the Upper Middle Income bracket (more than double the amount taken from the Top 20%), nearly 9% from those in the Middle Income bracket and nearly 16% from those in the Lower Middle Income bracket.

At those levels, the incentives are not even close to being equivalent.

And they flow in the wrong direction.  Those Alaskans with the greatest ability to influence the legislature (particularly the Senate R's) through maximizing donations and directing lobbying efforts pay a nearly trivial amount of their income. Those with the least influence pay by far the most.  

As a result, the incentives created by the approach, if anything, actually are to maintain (or even increase) the type of spending favored by the Top 20%. Repeated efforts to use the state's savings to pay off oil tax credits early -- while at the same time defaulting on the state's statutory PFD obligations -- come quickly to mind as one consequence.

The 'structural deficit' argument is similarly humorous.  

Since returning to control following the elections of 2012, the Senate R's have run both structural (compared to sustainable budget levels) and cash (current revenues minus current spending) deficits every single year.  Let that sink in for a moment: the Senate R's have run deficits every single year since returning to power in the 2012.

If the structural deficit theory had any merit it would have resulted by now -- 5 years later -- in controlled spending.  It hasn't.  Instead, when push came to shove last session the Senate R's finally threw in the towel, deciding to raise new revenue (through the PFD tax) rather than cut spending further.  There is nothing -- nothing -- to indicate the future is going to be any different.

Those who argue the Senate now "gets it" are either deluding themselves, or as we suggest in another piece, are simply attempting to "play" Alaskans. See Are Alaskans being played,  http://bit.ly/2kTtAe7.

The House approach isn't any better.  As best we can determine, the House approach is simply to go through the budget line item by line item and evaluate whether any can be reduced as the lobbyists and special interests look on over their shoulder.  That is the same approach the Senate has taken since 2012.  The result has been continued deficits ultimately culminating in the 'new revenue' grab of last session.  Again, there is nothing to indicate the future is going to be any different.

The flat tax works differently -- and better

The incentives created by a flat tax would work differently.

Living up to the goal of requiring all Alaskans to bear the burden of government spending equally, a flat tax would impose the costs of spending proportionately (as a percent of income) across all income brackets.

Unlike the current PFD tax, higher income Alaskans would bear the same burden as a percent of income as lower income Alaskans.  Unlike the progressive income tax championed by some, lower income Alaskans would bear the same burden as a percent of income as upper income Alaskans.

Neither income bracket would be incentivized to maintain or increase spending because someone else is paying for it.  All Alaskans would pay an equal share.  And because the tax would apply to all income received in Alaska, non-residents would contribute as well.

How does that help control costs?  In three ways.

First, by applying equally the tax would incentivize all Alaskans to take an equally hard look at government spending levels.  Because they would bear a proportionate share of any required "new revenue," higher income Alaskans with access to legislators through donations and lobbying efforts would be directly incentivized to keep spending levels low.

Because they also would bear a proportionate share of the costs, middle and lower income Alaskans would be disincentivized to seek increased spending, and instead would be incentivized along with higher income Alaskans to keep them low.

Second, because the approach is immediately transparent and understandable, a flat tax would enable Alaskans to become more directly involved in the process.

Assuming (as we believe to be the case) the current long-term sustainable revenue level from oil, Permanent Fund earnings  (using Hammond 50/50) and other, existing taxes is around $3.75 billion, a spending level of $4.25 billion would translate directly into a flat tax of roughly 1.75% (rounded to the nearest quarter percent), a spending level of $4.50 billion would translate directly into a flat tax of roughly 2.75% and a spending level of $5 billion would translate directly into a flat tax of roughly 4.5%.

Unlike the proposed Senate and House approaches -- which largely mask the impact of government spending levels on individual Alaska families -- Alaskans would know directly and immediately what the personal impact on them would be of any increase (or decrease) in government spending levels.

Armed with that knowledge, they would be positioned to provide direct and targeted feedback to those in government, i.e., "I am ok with paying a 3% tax to fund additional government spending (above the long term sustainable revenue level), but not 4%."  While not all would agree, at least all would be "singing from the same hymnal."  

That, in turn, would facilitate arriving at a consensus in the light of day, rather than in the dark of the lobbyist and special interest influenced back rooms.

Third, a flat tax would be easy to implement and administer.

Because the tax would be based on federal AGI ("Adjusted Gross Income") the state portion could be filed on a single page. Compliance could be handled digitally by comparing the federal AGI line against that on the state return, and then ensuring that the state tax calculation -- AGI times tax rate -- is mathematically correct.

Collection similarly would be straightforward. As we have discussed elsewhere, just as occurs for other taxes, a percentage of the flat tax could be withheld during the year from various income sources, including the PFD. See "Designing a Flat Tax," http://bit.ly/2fHSCYH.

Those filing returns would include the withholding as part of their state return; the state would retain the withholding as tax for those not filing a state return.

As we have said repeatedly on these pages, we don't believe any of these "tax and spend" programs are necessary. Instead, we believe using the Hammond 50/50 approach Alaska is reasonably well positioned to ride out the current low in the oil price cycle without self-inflicting any further damage on its economy. See "The Special Session version of “Implementing Governor Hammond’s 50/50 Plan," https://goo.gl/nE15Eo.

But, as we also have said repeatedly if we nevertheless are headed down this road -- and the Senate R's have made clear that we are -- it should be done with the least damage and disproportionate effects possible.

We believe that replacing both the Senate and House proposals (both the PFD cut and income tax components) with a single flat tax -- a tax that imposes an equal distributional burden regardless of income class -- does exactly that, and does the best job of controlling spending to boot.

Are Alaskans being played ...

Yesterday we posted a commentary focused on the detailed economic analysis published last year by Alaska's Institute of Social and Economic Analysis (ISER), the state's best economic think tank, of how various "new revenue" measures impact the overall Alaska economy and Alaska families. See "Some claim that PFD cuts are better for the Alaska economy than taxes. Our response? Prove it.," http://bit.ly/2z988oO

The conclusion of the ISER analysis is crystal clear. Cutting the PFD -- the lever relied on thus far by both the Administration and legislature -- has the "largest adverse impact" on the overall economy (both jobs and income) of any of the so-called "new revenue" options and is "by far the costliest measure for Alaska families" of all of the options.

Let that sink in for a moment. In the midst of a recession both the Administration and legislature have pulled the so-called "new revenue" lever that has both the COSTLIEST and most ADVERSE effect of any option on the overall economy and families. Worse even than income, sales or even property taxes. Yup, that bad.

Why have they pulled that lever, then? Because it has the smallest impact on the Top 20%, what some call the donor class. See "Why are the House Democrats & Independents sticking it to middle and lower income Alaskans?," http://bit.ly/2yFjOyA.

The purpose of our post was to make the point that even taxes are better for the overall economy and Alaska families. In previous posts we have explained why, if we have to go there, we think a flat tax is the best of the alternatives. See "Finding the Alaska fiscal 'center'," http://bit.ly/2yaiN4t.

But in yesterday's post we just wanted to focus on the singular point that cutting the PFD is so bad for the overall economy and Alaska families that even progressive income, sales and property taxes are better alternatives.

Predictably and understandably, a segment of the response to the post was that "both are bad," and that instead of writing about either we should be focusing instead on cutting spending. 

We certainly agree that cutting spending is better, and, indeed, have been writing about that for more than five years now, back when we suspect (indeed, know) some now taking that view were still going to the state for funding for this special project or that. See, e.g., "It’s time to cut state spending: The numbers show future has arrived," http://bit.ly/2gpPwJv (Oct. 7, 2012).

But increasingly we are coming to the view that continuing to take that position -- focusing exclusively on cuts instead of also comparing the various new revenue options -- is not only a waste of time, but indeed, is counterproductive and playing right into the hands of the Top 20%.

Why is that? Because, again frankly in our view, we think that the Administration and legislature -- indeed, any Administration and legislature -- have largely come to the end of the cutting. 

After promising repeatedly during the 2012, 2014 and 2016 election cycles that they would make the hard decisions necessary to continue bringing spending down, this past session the Senate Republicans -- to some degree the last line of defense in the effort -- essentially blinked and voted 12-2 to cut the PFD (i.e., raise new revenue) rather than cutting spending further.

Now, the consensus view in both the House and Senate, at least in the view of one reporter, is that "pending POMV legislation [which includes a permanent PFD cut along the lines of that incorporated in this year's budget] ... is largely expected to be fully passed next year." See "Permanent Fund trustees seek inflation-proofing bill," http://bit.ly/2yCgMPJ.

If the Senate R's have given up the effort to avoid new revenues, there really is little hope for it going forward.

But that doesn't mean that they -- and others driven by the Top 20% -- don't want average Alaskans to continue to talk about cuts first and only. Doing so diverts attention from what they and others are doing in the meantime -- cutting the PFD instead of evaluating it against other "new revenue" options which would be better for the overall Alaska economy and Alaska families, but would be worse for the Top 20%.

One might speculate that their hope is to continue generating the "cost cutting" discussion as a cover until the PFD cut is sufficiently ingrained in statute and elsewhere so as to be irreversible. 

Dividing your opponents by having them fight among themselves is a well-worn, and highly successful, tactic. We would not be surprised to learn even that some making the comments are, in fact, Facebook and other trolls created by or at least, knowingly or not, spurred on by the Top 20%. But that is a subject to pursue another day.

For now our point remains this. Cutting the PFD is the worst -- the most "adverse" to jobs, income and the overall Alaska economy, and "by far the costliest" to Alaska families -- of all the various "new revenue" options.

Want to spend time worrying about where this state is headed? Our advice is to worry about that. 

If you aren't, think about whether you -- including even some of you that are backbenchers in the legislature -- are being played. Increasingly we think you are.

Some claim that PFD cuts are better for the Alaska economy than taxes. Our response? Prove it.

As we approach the upcoming, so-called "revenue" session, some are claiming directly or indirectly that PFD cuts are a better alternative from the standpoint of the Alaska economy than taxes. 

The Alaska Chamber, an afternoon radio talk show host, a KTVA "commentator" (who often claims ironically that listeners are entitled to their own opinions but not their own facts), an ADN columnist, an Alaska Journal of Commerce editor, a self-styled public interest group and one "Independent" and more than a few Republican members of the #AKleg immediately come quickly to mind.

Our response? Produce a detailed, non-partisan, Alaska-focused economic study that shows that. Until then, take a look at the truth in advertising rules and stop it.

After analyzing the effect on the overall economy of PFD cuts and statewide income, sales and property taxes, here is what ISER said last year:

Lower-income Alaskans typically spend a higher share of their income than higher-income Alaskans do, so more regressive measures will have a larger adverse effect on expenditures. The impact of the PFD cut falls almost exclusively on residents, and it is highly regressive, so it has the largest adverse impact on the economy per dollar of revenues raised.

ISER, Short-run Economic Impacts of Alaska Fiscal Options, http://bit.ly/2vVJOoC at A-15.

The report doesn't stutter, and it doesn't contain any "on the one hand, but on the other" qualifiers. 

Instead, the report concludes simply and directly that cutting the PFD -- not an income, sales or property tax -- costs the Alaska economy more jobs and more income than any other option.

In short, cutting the PFD is the worst option from the perspective of the Alaska economy.  Period, full stop.

And the effect on Alaska families? After studying the same range of alternatives, here is ISER's conclusion:

A cut in PFDs would be by far the costliest measure for Alaska families.

ISER, How Much Might Closing the State Budget Gap Cost Alaska Families?, http://bit.ly/2hVx9iQ at 1.

"By far." No ambiguity there either.

By shoving the bulk of the burden off on others, cutting the PFD does help one subgroup of Alaskans. The Top 20% of Alaskans by income pay less with a PFD cut than under other options.

But for the Remaining 80% of Alaskans -- and thus, the overall Alaska economy and Alaska families as a whole -- cutting the PFD has the "largest adverse impact" and is "by far the costliest measure" of all the options ISER studied.

The sum total of detailed, non-partisan, Alaska focused economic analyses published to date that rebut ISER's conclusions? None, zero, zip, nada.

So, for those that are claiming directly or indirectly that PFD cuts are acceptable from the perspective of the overall economy and Alaska families, but "taxes" would be bad, it's time to put up or shut up.

Produce a detailed, non-partisan, Alaska-focused economic study that rebuts ISER's conclusions, or admit you are only talking to the Top 20% ... or better yet as we suggest above, consult the truth in advertising rules and just stop.

The most stunning thing about Charles Wohlforth's two columns ...

Charles Wohlforth, an Alaska Dispatch News columnist, wrote two pieces last week about the Alaska economy.  

Both, however, completely omit key facts critical to their subjects, resulting in hugely misleading assessments about what is happening in the state's overall economy and the effect on Alaska families of various fiscal options.

The most stunning thing about the columns was what wasn't included.  For those interested we explain here.

The overall economy

Wohlforth's first piece was entitled "Alaska’s economy hasn’t hit bottom yet. But you can see it from here," https://goo.gl/U5XBvW.
In writing about it, however, he omitted steps currently being taken by the Administration and legislature that are making the situation worse.

Over the last two years first the Administration, and this year the legislature cut the PFD in half.  That has made Alaska's overall economic situation worse.

Why is that?  According to detailed economic analyses published last year by the University of Alaska Anchorage Institute of Social and Economic Research, cutting the PFD:

• Has "the largest adverse impact on the economy [of all the new revenue options] per dollar of revenues raised," https://goo.gl/ZxR1Hw at A-15; 

• Is "by far the costliest measure for Alaska families," https://goo.gl/ivf9D2 at 1; and 

• "[L]ikely increase[s] the number of Alaskans below the poverty line by 12-15,000 (2% of Alaskans)," https://goo.gl/iuTjv2 at 14.

In addition, according to ISER's 2016 study, cutting the PFD has the largest adverse effect on overall state income of all of the state's fiscal options, including cutting state spending.  

Especially in the middle of a recession that's an important consideration because, while jobs are important, income translates more directly into economic activity levels. See Why we believe cutting the PFD has the largest adverse impact on the overall Alaska economy, https://goo.gl/yIsaOv.

But none -- none -- of those facts are in either of Wohlforth's pieces.

What is in Wohlforth's piece?

Some discussion, among others, with Top 20%'ers Jim Jansen (Chairman of Lynden Inc.) and Ron Duncan (Chairman of GCI), and with "high-end restaurant" (Wohlforth's words) owner, Laile Fairbairn, about the effect of the recession on their businesses.

The conclusion from those discussions?  

For the most part, losses of high-wage workers are over, economists said. ... But lower-wage workers are still losing their jobs as the decline filters outward. The course of the recession continues to follow projections by economists last year, who said the decline would ultimately take 6 percent of jobs.

 In short, for those in the Top 20% of Alaska's economic strata -- for whom the PFD is a relatively small part of their income -- life is stabilizing, but for the Remaining 80% -- those whose family economics are most affected by PFD cuts -- the negative impacts of the recession are expected to continue and, indeed, deepen.

The problem is, a large part of the overall economy is driven by the Remaining 80%.  And as ISER concluded, cutting the PFD has the "largest adverse impact" on that.

Wohlforth's article completely misses that boat and in doing so, paints a completely misleading picture of both the current and future economy. Yes, it may be stabilizing for those in the Top 20% -- those to whom Wohlforth apparently talked.

But the state is digging the hole deeper for the Remaining 80% and through them, the overall Alaska economy.

The effect on individual Alaskans

Wohlforth's second piece carries the title, "Here’s how the state’s fiscal gap could affect your finances," https://goo.gl/YKGRjH.

As we have repeatedly discussed on these pages, because of the regressive impact of PFD cuts, all of the the fiscal options currently being pushed by the Governor, Senate and House take significantly more from the income of an archetypical family of four in the middle and lower income brackets than they do from those in the Top 20%.

Indeed, under all three options 40% of such Alaska families face more than a 10% reduction in their income and the bottom 20% face a reduction of roughly 25% or more.  The following chart summarizes the effect.

Those effects are highly relevant to the question of how the "state's fiscal gap could affect" the finances of the ADN's readers.

Essentially, all of the proposals divide the state along income lines into Two Alaskas.

The Top 20% -- those whose economic situation is stabilizing -- come off almost completely unscathed.  The Remaining 80% -- those already and projected to continue reeling from the state's recession -- face increasingly deep cuts.

But again, none -- none -- of those facts are in Wohlforth's pieces.  

And neither column contains any discussion of alternatives to cutting the PFD.  Both columns assume it as a given.

A better way

Had Wohlforth taken the time to look beyond the effect on the Top 20%, he might have stumbled on to the fact that there is a better way forward for both Alaska's overall economy and individual Alaska families. 

Taking $750 million out of the private sector and diverting it to government through a PFD cut has such a significant adverse impact on the overall Alaska economy because the vast bulk of it comes out of the pockets of middle and lower income Alaskans.

As ISER explains in its 2016 report: 

Lower-income Alaskans typically spend a higher share of their income than higher-income Alaskans do, so more regressive measures will have a larger adverse effect on expenditures. The impact of the PFD cut falls almost exclusively on residents, and it is highly regressive, so it has the largest adverse impact on the economy per dollar of revenues raised.

See Short-run Economic Impacts Of Alaska Fiscal Options, https://goo.gl/ZxR1Hw at A-15.

Spreading the impact more evenly over a broader base will significantly improve both the impact on the overall economy and Alaska families.

Because it will leave more money in the pockets of the Remaining 80% and those families typically spend a higher share of the money in their pocket than the Top 20%, that will put more money into the overall economy, dampening the effect of the recession.

The broadest possible base is to spread the impact over Adjusted Gross Income (AGI).  Grossed up to reflect the amount of additional income received in Alaska by non-residents, that amounts to about $27 billion.  The tax rate required to raise $750 million from that base is about 2.75%.

And doing exactly that, assessing the tax at a flat rate of 2.75% will spread the impact more evenly.  Both the Top 20% and Remaining 80% will feel the impact to the same degree; neither will be required to bear the brunt of funding government -- or suffer reductions in their purchasing power -- disproportionately.

Because it is spread evenly, the Remaining 80% will have more money in their pockets to spend, improving the condition of the overall economy.  The Top 20% will bear the costs of government to the same degree.

In short, if we need to raise so-called "new revenues," doing so through a flat tax has both the softest impact on the overall economy and on individual Alaska families.

Those facts would seem to be highly relevant to two columns focused on Alaska's overall economy and the impact of the state's fiscal gap on the finances of Alaska's families.

But you won't find any of that in Wolhforth's pieces.  He is too busy chronicling the impact only on the Top 20%.